The new SEC chairwoman has suggested the commission pass the existing plan without major changes and add additional protections later, according to unnamed sources.

U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.

White, who became SEC chairman on April 10, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the SEC has slow-walked the rule, which was required to be completed by July 2012.

Approving the regulation would allow White to make good on a promise she made in her Senate confirmation hearing to prioritize rules mandated by the Jumpstart Our Business Startups Act, which was designed to boost capital-raising and job creation. At the same time, it could anger advocates for small investors and at least one Democratic commissioner.

“It would be a very bad sign -- a cause for grave concern about the substance of the issue and process of how investor protection concerns are addressed,” Barbara Roper, director investor protection at the Washington-based Consumer Federation of America, said in a phone interview. Roper said she discussed the rule with White and other SEC officials on April 23.

John Nester, an SEC spokesman, declined to comment on White’s plans.

“Aggressive Effort”

The SEC’s five-member commission has been divided on the rule since last year. The SEC’s two Republican commissioners have said the proposed rule should be completed as written. Democratic Commissioner Luis A. Aguilar said this month that a rewrite is needed because the proposal was an “aggressive effort to exclude pro-investor initiatives.”

The rule would lift the ban on “general solicitation,” or using advertising to market investments in hedge funds, startups and other firms. The prohibition was designed to protect small investors from taking inappropriate risks. Only more sophisticated investors, or people with annual income greater than $200,000 and net worth greater than $1 million excluding their home value, can make such investments.

These types of investments are exempt from the requirement to file financial results with the SEC. They raised $905 billion in 2010, surpassing the amount of capital raised by any other type of offering, including public debt, according to a February paper by SEC economists. Sixteen percent were done by hedge funds, 15.3 percent by technology companies and 9.8 percent by health care firms, according to the SEC.

State securities regulators say such offerings were the most common product leading to enforcement actions in 2011.

First Priority

White’s plan would allow the commission to dispatch with a rule she has described as a first priority. “The SEC needs to get the rules right, but it also needs to get them done,” she told the Senate Banking Committee last month.

Taking a final vote also would alleviate congressional pressure. In August, the SEC approved an initial plan 4-1, with Aguilar voting against it. The full commission has to vote again on the final proposal for it to take effect.